Drip Capital: Revolutionizing Global Trade Finance
Pushkar Mukewar shares his journey co-founding Drip Capital, a digital trade finance startup, making $4 billion in loans to over 6,000 small and medium enterprise (SME) exporters in Emerging Markets.
Pushkar Mukewar's background
Pushkar Mukewar is the Co-Founder and CEO of Drip Capital, which he started along with Neil Kothari in 2015. Pushkar grew up in India where he obtained a degree in Computer Science from Savitribai Phule Pune University. He was awarded a scholarship for two years of graduate studies in Computer Science and Computational Biology at the Georgia Institute of Technology. He then transitioned into financial services, working at Capital One where he gained insights on how data and analytics can help offer credit solutions to underserved market segments. He later consulted for various financial services companies in the United States, Middle East and Europe which helped him understand the nuances of the global financial services industry, before going back to business school at Wharton. At Wharton, Pushkar met Neil Kothari, whose background was in financial services and computer science. Neil had worked at BlackRock and on Wall Street in asset management.
After his time at Wharton, although eager to start his own venture, Pushkar gained exposure working in venture capital and investing in a number of early-stage companies in India. In 2015, he finally took the plunge and started Drip Capital alongside Neil. Drawing on their past experience working with financial data and analytics, and seeing demand from investors looking for yield from the U.S. and developed markets, they created an innovative system that serves small businesses unable to access traditional credit – particularly those living in emerging markets.
Drip Capital's mission
Drip Capital, a digital trade finance startup, is making global trade accessible and easy for small businesses worldwide. They understand that small businesses are the backbone of any major economy, but often lack access to the capital and resources needed to scale up.
Bridging the gap between where you start and growing into a larger company is tough - that missing middle is the problem. Countries like Taiwan and China have been able to solve this gap in access to capital and hence driven growth in their economies.
Drip Capital is building the next generation trade facilitation platform to help small businesses. They started off the business by solving the most critical needs, which they identified as access to credit. As they continued to engage and work with these businesses, they realized that there are challenges for many of these businesses in various dimensions - whether it's handling Forex, getting insurance, finding new buyers and new suppliers. Drip Capital’s long-term vision is to become a one-stop shop for SMBs engaged in global trade by offering multiple products and services to make growing their business easier.
How does Drip Capital help small businesses?
Small businesses account for 40% of international trade, approximately $5 trillion, which is expected to grow to over $8 trillion in the next 10 years. With the advent of the internet, businesses are able to connect with customers more easily across borders. As a result, more SMBs participate in global trade. Platforms like Alibaba and Amazon have made it easier for businesses to sell across borders and that has been a driver of growth in this segment.
When you think about the typical small business, they get an order from an overseas buyer, they then need money to manufacture those goods and ship them out. After shipping the products there’s often a 60 to 90 days wait to receive payment. These businesses have a long working capital cycle and many of them are not able to grow beyond that point if they don't get access to working capital.
Their first stop is typically local banks and many of these banks have very stringent policies when it comes to small businesses. They may require high collateral in the form of land, property or machinery or they may require financials in a way that many small businesses are not savvy enough to have organized.
Getting any kind of credit line or approval will take between 30 and 45 days. It's a highly cumbersome, bureaucratic process. As a result more than 50% of small businesses get turned down for trade finance and the ones who do get it are underserved. They don't get access to the adequate amount of finance they need to really grow their business which is where Drip Capital comes in. Drip Capital has built a solution where they are able to offer flexible payment terms and help bridge the working capital gap for small businesses.
If you're a small business seller, you are likely to be waiting between 60 or 90 days to get paid for exports. On the Drip Capital platform, you can get approved for a credit line when you have a shipment and can submit that transaction to get paid immediately.
Drip Capital also has a product for buyers or importers where many of the small businesses may not get credit terms from their suppliers and they have to purchase or make the payment. Through their platform, buyers can get extended payment terms. Drip Capital would pay the supplier on their behalf and the buyers can get between 60 or 90 days on an extended payment term.
With credit lines ranging from $50,000 up to $2 million from Drip Capital, small businesses now have a better chance of propelling their growth. An average transaction at Drip Capital is typically around $15,000 to $20,000 against an invoice, providing working capital for business growth.
How is Drip Capital's offering different from banks?
The reason why Drip Capital exists is because banks don't focus on this segment. When you are trying to underwrite every transaction the way the banks do, it’s a very highly manual process and not worth their while to underwrite a small transaction. They prefer to focus on larger transactions, hence their focus is on larger operators.
Technology has a huge role to play in being able to service the small businesses segment and to do underwriting and decision-making on small ticket transactions. This is where Drip Capital is focused on all aspects of the customer lifecycle driven by technology - whether it's their acquisition engine, underwriting engine or servicing engine.
Drip Capital has a self-serve portal, where any transaction which gets submitted in real time gets processed. They look at multiple data points to approve every transaction and that system only keeps improving over time. This is what enables them to effectively service this segment of the market. Many of these banks and traditional institutions want to partner with them rather than compete or operate in this space.
While they started in India, they work with sellers and buyers across a hundred plus countries including North America, Europe, Asia, Southeast Asia and Latin America.
What has been Drip Capital's impact?
Drip Capital has a monthly transaction volume of $150 million serving over 6,000 SME buyers and sellers on the platform as of January 2023. They’ve processed over $4 billion in total transactions, raised over $100 million in venture capital and have built a strong team of 300 people across India, U.S. and Mexico. They were fortunate enough to get support from a very strong set of investors including Accel, Sequoia, Wing and Y Combinator.
Any asset or invoices that originate on Drip Capital’s platform has to be supported by an investor or debt investor who can finance these invoices - for which they have both institutional and non-institutional investors. Barclays is one of their biggest partners, followed by a California-based bank called East West Bank. Beyond that they have family offices and private credit investors across the U.S and Europe.
The services provided by Drip Capital have been invaluable to 6,000 small businesses that would otherwise have been unable to secure the funding they need to expand and flourish. Through innovative solutions such as invoice financing and purchase order financing, Drip Capital has been boosting the fortunes of small businesses around the world, enabling them to compete on a global scale. Pushkar Mukewar's vision and drive have been truly instrumental in opening up a new era of global trade accessibility, empowering entrepreneurs everywhere.
What happens if a seller is unable to make the payment within 90 days?
Typically there are two aspects. The first is that a lot of it is on Drip Capital’s underwriting process. When they assess the risk of the transaction, they are actually assessing the risk of the buyer and the sellers' track record. They have a model in place where they approve the transaction or reject it.
Secondly, in trade there's always operational issues which happen. There's supply chain problems such as ships getting stuck or containers not able to get cleared. That's baked into their economics and there may be incremental fees if something like that happens.
The main concern is because of this uncertainty around cash flow. Many sellers get stuck and that's where the solution becomes super valuable. Coming onto Drip Capital’s platform provides certainty of payments. The certainty of cash flow is what people really value because if their money does get stuck for 150 days, their whole business may shut down. That's where people see value in Drip Capital’s solution.
Agri FinTech is a big emerging area in India, but because of the high risk associated with the sector the rates offered are quite high. Do you have any ideas on how to reduce the risk to make the interest rate lower?
There are two factors - one is that in any kind of a credit business, data and experience plays an important role. Without any customers, a credit model or some track record, most banks will not support you. Automatically that means your source of capital is going to be expensive. If you want to build a business with a higher source of capital, you'll charge a higher rate to your customers to begin.
Secondly, in the early years of operation, your risk will be higher because you don't have a diversified enough customer base. You don't have a perfect credit model, so you will lose money in earlier parts of your cycle than later.
Credit businesses are all about scale. So if you continue to scale up, your sources of capital will diversify. You'll start having more access to bank financing, which is cheaper. Your credit models will improve. You'll have a more diversified portfolio, so your loss rates go down, and once that starts to happen, you can pass on those savings to your customers and effectively start bringing down the rates.
Agriculture is a priority sector for exports and the Indian government is trying to promote this sector. So at some point as an organization, if you really want to get to that 10% or 9% or a very subsidized rate, you'll have to engage with the government which is bearing the cost of the subsidy.
How did you prepare yourself in the early stages to allow for international expansion?
Drip Capital’s co-founders, Pushkar Mukewar and Neil Kothari, were based in Mumbai and California respectively when they first launched the business. As a result, they started off with a multi-country operation. After gaining a strong foothold in the Indian market, they launched in Mexico
Pushkar believes that two things have served them well as they’ve expanded operations. The first is having clarity on the thought process going in - which function is going to be driven from where? What they've found to be effective is that while you can have a global operation, there is value in some amount of decentralization. Having clarity on which functions are going to be decentralized and which functions are going to be centralized really helps.
The second thing is getting a strong leadership in place, because each market has its own nuances. In Mexico, they had a language challenge and had to work in a different time zone. So what really helped them was building a strong leadership team in Mexico and giving them the authority to run that market.
Check out Drip Capital and follow their journey:
https://www.linkedin.com/company/dripcapital
https://twitter.com/dripcapital_inc
https://www.facebook.com/dripcapital
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